Wednesday 6 July 2016 01.24 EDT
First published on Tuesday 5 July 2016 22.48 EDT

The pound sank to a fresh 31-year low against the dollar on Wednesday amid growing signs that the shock Brexit vote is already damaging the UK economy.

Sterling hit a low of $1.2796 at one point as investors lost confidence in Britain’s future outside the European Union and piled out of the UK currency.

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The last time the pound was lower was in June 1985, but it has still got a way to fall before hitting its all time low against the dollar of $1.0520, struck on 1 March 1985.

Sterling has plunged almost 15% since a poll published on 23 June – the day of the referendum – wrongly indicated Britain had voted to stay in the EU, pushing the UK currency above $1.50. The pound also fell to a near three-year low against the euro at €1.1741.

In early trading on Wednesday Barratt Developments was leading the FTSE 100 fallers, down by over 5%, while Taylor Wimpey fell 4%. The FTSE 100 was up 0.3%, at 6563, but the more UK-focused FTSE 250 index was down again, falling 0.5% to 15660.

Michael Hewson, chief market analyst at CMC Markets, said: “The pound has continued to come under pressure in the past couple of days sinking to new 31 year lows.

“The suspension of commercial property fund redemptions by a number of big players has precipitated a broader sell off in the UK property sector including house builders and other asset managers.

“Combined with a warning that some Brexit effects were already starting to crystallise and this week’s slowdown in recent economic data we’ve seen a bit of a domino effect in locally exposed sterling assets, as well as risky assets generally across the world.”

The pound also fell against the Japanese yen on Wednesday, hitting a three-and-a-half year low of 128.81 yen.

Concerns about the impact on already fragile global growth spread to commodity markets. After oil prices shed 5% on Tuesday, Brent crude fell further on Wednesday to $47.57 a barrel, before recovering slightly to go back above $48.

Investors rushed to safe-haven sovereign debt and took markets deeper into unknown territory.

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Yields on US Treasuries, the benchmark for bonds worldwide, hit record lows out to 30 years. Investors had to pay Japan 0.27% to lend it money for 10 years.

“There’s no inflation prospects, there’s no strong growth. The only thing we have is uncertainty,” said Hiroko Iwaki, senior bond strategist at Mizuho Securities.

In Japan, the Nikkei fell 1.9% to 15,379, as concerns over the Brexit vote continued to be felt further afield.

Since Britain’s shock vote to exit the EU two weeks ago, investors have been consoling themselves with the expectation of yet more policy easing from the major central banks.

Yet analysts, and many at the banks themselves, have warned that the scope for manoeuvre is strictly limited and any new steps could prove counter-productive.

“Financial markets appear to have taken a more realistic view around the complexity and uncertainty characterising the global political background and its impact on already lacklustre economic growth,” wrote analysts at ANZ in a note.

“This suggests the tug-a-war between more central bank support and economic fundamentals is going to increase, driving market volatility.”

Dealers said there was no one event behind the moves but rather an accumulation of negative factors.

And in Italy, shares in its banks tumbled, shaking the financial foundations of the eurozone’s third-largest economy.

“Italy faces a severe crisis that is exponential. This is not gradual and not linear,” said Francesco Galietti, head of the Policy Sonar risk consultancy and a former finance ministry official. “The immediate trigger is the banking crisis.”